Bankruptcy reforms ‘will spur Saudi Arabian investment’

Bankruptcy regulations in line with global standards are a major step in overhauling the Saudi economy, analysts say. (Shutterstock)
Updated 01 August 2018
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Bankruptcy reforms ‘will spur Saudi Arabian investment’

  • Saudi Arabia will introduce its first comprehensive bankruptcy law on Aug. 18
  • The new rules have been drawn up to offer protection to creditors

LONDON: Saudi Arabia will introduce its first comprehensive bankruptcy law on Aug. 18 in a move designed to encourage foreign and domestic investment in private business, experts say.
The move is also seen as providing a boost for competitiveness and jobs, and to help pave the way for the transfer of knowledge and skills as part of a drive to modernize the economy.
Based on internationally recognized insolvency standards, the new rules have been drawn up to offer protection to creditors such as banks, as well as stricken companies that seek to wind up their affairs in an orderly manner, thereby shielding themselves from arbitrary seizure of their assets.
“The new regulations will offer lenders, firms and their executives peace of mind and spur overseas investment in the private sector,” said Dario Najm, an associate in the corporate and M&A practice at BSA Ahmad Bin Hezeem & Associates LLP in Riyadh.
In an interview with Arab News, he said that until now there had been little in the way of “procedural clarity” in the way bankruptcies have been handled in KSA. But this was vital to generate confidence and “bring in foreign direct investment that will help to expand the private sector in line with Vision 2030, and refashion the economy.”
Najm also indicated that many investors were waiting for the new laws to come into force before making KSA investment decisions.
The laws would encourage the creation of new enterprises and medium-sized businesses, by Gulf and overseas entrepreneurs, creating employment for Saudi nationals, Najm said. It would generate confidence that a formal system was in place to liquidate companies that had run into trouble, or allow them time to recover by arranging a debt-repayment schedule.
Jason Tuvey, Middle East economist at Capital Economics, told Arab News that “there is a good chance these latest developments will help to attract more foreign investment, and aid the wider economy in terms of knowledge transfer, which in turn could lead to stronger productivity growth.”
He said that the law would encourage risk-takers to invest capital in new businesses that will help take the country away from its dependency on oil.
“It allows creditors and debtors to enter into agreements to schedule the payment of debts, a measure that will enable indebted corporations to achieve a stable financial status.”
Confirmation that the new bankruptcy law would be implemented in five weeks came from a Saudi Ministry of Commerce and Investment official during a workshop.
Speakers said that the bankruptcy law served an Islamic purpose, which was the preservation of money, and was to be applied according to the best international practices for addressing financial issues, Asharq Al-Awsat newspaper reported.
Majed Al-Rasheed, secretary-general of the Bankruptcy Commission at the Ministry of Commerce and Investment, was quoted as saying the law provided “a set of tools and solutions that regulate the value of the debtor’s assets to be sold at the highest possible price in a short period of time, and this establishes trust in the credit market.”
Maher Saeed, director of the bankruptcy law project, said that the new laws — first outlined in February — included seven chapters for bankruptcy procedures.
The idea was to take into account the circumstances of defaulters and small debtors, providing them with special procedures.
“The law will bolster Saudi national choices emphasized in Vision 2030, which aim to establish a prosperous economy, facilitate business, help investors overcome financial obstacles, and empower debtors,” he said.


Profit at world’s biggest miner BHP jump, but warns on costs, savings

Updated 21 August 2018
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Profit at world’s biggest miner BHP jump, but warns on costs, savings

  • The world’s biggest miner said it expected its strong momentum to continue into the medium term
  • BHP paid out a record final dividend of $0.63 a share, up from $0.43 a year ago, on the back of free cashflow of $12.5 billion
MELBOURNE: Global miner BHP posted a 33 percent jump in annual underlying profit and a record final dividend on Tuesday, but flagged a delay in future savings as well as cost pressures at some of its operations.
The world’s biggest miner, which has been focusing on simplifying its business and driving returns to shareholders, said it expected its strong momentum to continue into the medium term.
However, BHP Chief Executive Andrew Mackenzie said the miner was “a little more apprehensive” on the short-term outlook, given trade ructions between China and the United States, and analysts flagged concerns over rising costs.
For the year ended June 30, underlying profit, which excludes one-time gains and losses, rose to $8.93 billion from $6.73 billion, just below an estimate of $9.27 billion according to 15 analysts polled by Thomson Reuters.
BHP paid out a record final dividend of $0.63 a share, up from $0.43 a year ago, on the back of free cashflow of $12.5 billion from a strong operating performance and higher commodity prices. “A pretty solid result really. I think largely in line with what the market expected,” said portfolio manager Andy Forster of Argo Investments in Melbourne. “Definitely the cash flow was strong, the dividend probably a bit stronger than what we expected.”
However, a cut in productivity gains expected in fiscal 2019 — to $1 billion from a previously promised $2 billion — “slightly took the gloss off the results,” he added, although the miner pledged to make the additional savings in 2020.
BHP also noted some cost creep due to geotechnical issues at its Queensland coal operations, rising fuel costs, and pockets of inflation in labor.
“The dividend was better than expected, but the slight fiscal 2018 (earnings) miss and fiscal 2019 cost guidance is likely to cause us to take down estimates modestly,” broker Clarkson Platou said in a report
Shares in BHP fell 1.8 percent in afternoon trading, compared with a 1 percent fall in the broader Australian market and a 0.8 percent dip in rival Rio Tinto.
Including one-time charges, BHP’s profit fell 37 percent to $3.71 billion.
These included a $2.8 billion post-tax charge from the sale of BHP’s US shale oil and gas assets in July which ended a disastrous seven-year foray into shale.
BHP said that it would not make a decision on how to return profits from the sale to investors until it was finalized.
The company also took a $650 million charge for the 2015 Samarco dam failure in Brazil that killed 19 people.
Total revenue rose 20 percent to $45.81 billion. Revenue from iron ore mining, BHP’s biggest division, edged up 1.3 percent, while copper surged by nearly 60 percent backed by higher production from its Escondida mine in Chile.
Revenue from its petroleum division grew 14.5 percent on surging oil prices.
BHP said it cut net debt to $10.9 billion, at the lower end of its $10-15 billion target.